- March 14, 2019
How will Brexit Impact Retail and the Global Supplier Base?
Written by Melissa Twigg, March 13, 2019
Each week, Brexit instability reaches new, previously unimaginable, heights. As a result, the manufacturing sector is in turmoil – over the last two months, a series of major brands have made it clear that their future in the UK is in doubt if Westminster fails to pass a deal ahead of Brexit, which is still scheduled for 29th of March.
Toyota’s European boss, Johan van Zyl, said he could not promise British employees’ jobs were safe until the outcome of Brexit was decided. Meanwhile, the BMW board member Peter Schwarzenbauer, who oversees the Mini and Rolls-Royce brands, said the firm might be forced to stop making the Mini at its Cowley plant near Oxford.
And yet MPs remain in a grid-lock, refusing to pass Theresa May’s deal and incapable of deciding on a second course of action. This week, MPs will be given the option to vote on May’s deal for the second time, and on a no-deal exit from the EU. Both will most likely fail, meaning Brussels needs to give the UK an extension. If MPs can’t reach an agreement by this new extended date, no deal remains the default position.
Brexit on any terms – and no deal in particular – will lead to major disruption in supply chains and retail sourcing, as a result, companies are currently stockpiling imports worth over £40 billion and using supply chain technology to bring goods, faster to market. Retailers are banking on the fact that they will need supplies for up to two months as the country adjusts to WTO rules. Once the initial shock of Brexit has passed, speed-to-market will play a major role long-term, as more paperwork and hour-long checks on imports will make companies want to scale private label operations to bring goods into the U.K. faster.
But Britain, it turns, out, might not be big enough for Brexit. According to Saville’s, the U.K.’s biggest real estate company, the U.K. is an “under-warehoused country.” British warehousing stock works out to about 7.6 square foot of space per head, compared to the U.S., which has a far larger 39 square foot per head. This is partly due to the high population density of the U.K., but also because freedom of movement and borderless trade with the E.U. has allowed retailers to store goods on the Continent since the 1970s.
Unlike the rest of Europe, Ireland will retain free trade with the U.K. under the Common Travel Agreement, which predates the E.U. This means goods stored in the Republic can be transported to the U.K. without paperwork and long delays. Ireland will also remain an E.U. member state, and thus be able to ship goods to the rest of the continent. It also has a lower population density and more relaxed rules about new builds, making it a good solution to the current problem.
As a result, there has been a steady increase in applications for customs bonded warehouses to store apparel, toys and other goods, without paying import duty or VAT in Ireland. The Irish Revenue Commissioners has approved applications for five bonded warehouses this year and is processing a further six, as firms prepare to handle goods from the U.K. as a non-EU country.
Revenue officials are said to be busy inspecting warehouses for authorization in time for March 29th. Equally, British brands that export to Europe are now quietly renting EU warehousing space to ensure their goods find their way to European shores after Brexit.
There have also been a few signs of hope for Brexit-watchers. The U.K. government said it will introduce an easy to use customs process for importers in the case of a no-deal Brexit, that would allow qualified businesses to delay the payment of import duties and forego a full customs declaration at the border.
The European Commission will soon publish a report into necessary changes in its customs process in the event of a no-deal Brexit. The commission wants to ensure that goods continue to flow between the U.K. and the EU, according to Pierre Moscovici, the European commissioner for economic and financial affairs, taxation and customs.
While we can currently only speculate as to the full impact of a no-deal Brexit, and whether this worst-case scenario will even occur, manufacturers can’t be too careful when preparing for what will be the biggest retail supply chain disruption to British retailers in decades. To learn how to interlink SPEED, SCALE and SIMPLICITY through the implementation of efficient business processes and the reliable operation of technology, that will ultimately enhance your end-to-end, private label development process – inspirations, line planning, development, sourcing, quality and overall speed-to-market feel free to contact us directly or find more information @ www.cbxsoftware.com